National Bank of Poland — 2014 Outlook

Poland’s monetary policy council will watch for the right moment in 2014 to begin tightening credit to prevent faster growth from stoking higher inflation.

The Polish 10-member rate-setting panel takes pride in keeping interest rates consistently above inflation throughout the recent economic slowdown. It calls the approach conventional and contrasts it with the policy of the European Central Bank and the Czech National Bank, where benchmark rates are close to zero.

The Polish benchmark rate is 2.5%, the lowest level on record. The rates panel has said it would keep borrowing costs unchanged at least until the end of the first half of 2014.

One of the rate setters, Andrzej Bratkowski, said in December that rate increases could start in September, despite inflation remaining very low. In November, the consumer price index, or CPI, was at 0.6% in annual terms, well below the central bank’s tolerance level of 1.5%. The bank’s CPI target is 2.5%.

Inflation is widely expected to accelerate in 2014 paving the way for the rate panel to tighten rates.

That pace in the European Union’s largest emerging economy is improving with every quarter. In the third quarter annualized growth accelerated to 1.9% from 0.8% in the preceding three months, with a 2% rate is expected in the fourth quarter. In 2014, the Polish economy should grow around 3%, according to the central bank.

The Polish central bank also seeks to stabilize the country’s currency, the zloty, also historically very volatile. The Polish central bank has stepped in several times over the past three years, usually to keep the zloty from weakening too rapidly. The zloty has over the past few months been relatively stable to the euro and the U.S. dollar. The currency’s gradual strengthening could delay the rate panel’s decision to raise borrowing costs.

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